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Mon, 27 Jul 2015 13:51:47 +0200Mon, 27 Jul 2015 13:51:47 +0200Social security in an analytically tractable overlapping generations model with aggregate and idiosyncratic riskhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37818
When markets are incomplete, social security can partially insure against idiosyncratic and aggregate risks. We incorporate both risks into an analytically tractable model with two overlapping generations. We derive the equilibrium dynamics in closed form and show that joint presence of both risks leads to over-proportional risk exposure for households. This implies that the whole benefit from insurance through social security is greater than the sum of the benefits from insurance against each of the two risks in isolation. We measure this through interaction effects which appear even though the two risks are orthogonal by construction. While the interactions unambiguously increase the welfare benefits from insurance, they can in- or decrease the welfare costs from crowding out of capital formation. The net effect depends on the relative strengths of the opposing forces.Daniel Harenberg; Alexander Ludwigworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37818Mon, 27 Jul 2015 13:51:47 +0200Anchoring in experimental asset marketshttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37810
We investigate the relationship between anchoring and the emergence of bubbles in experimental asset markets. We show that setting a visual anchor at the fundamental value (FV) in the first period only is sufficient to eliminate or to significantly reduce bubbles in laboratory asset markets. If no FV-anchor is set, bubble-crash patterns emerge. Our results indicate that bubbles in laboratory environments are primarily sparked in the first period. If prices are initiated around the FV, they stay close to the FV over the entire trading horizon. Our insights can be related to initial public offerings and the interaction between prices set on pre-opening markets and subsequent intra-day price dynamics.Sascha Baghestanian; Todd B. Walkerworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37810Mon, 27 Jul 2015 13:33:54 +0200Are tax havens good? Implications of the crackdown on secrecyhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37809
The pressure on tax haven countries to engage in tax information exchange shows first effects on capital markets. Empirical research suggests that investors do react to information exchange and partially withdraw from previous secrecy jurisdictions that open up to information exchange. While some of the economic literature emphasizes possible positive effects of tax havens, the present paper argues that proponents of positive effects may have started from questionable premises, in particular when it comes to the effects that tax havens have for emerging markets like China and India.Alfons J. Weichenrieder; Fangying Xuworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37809Mon, 27 Jul 2015 13:11:42 +0200On the optimal provision of social insurance : progressive taxation versus education subsidies in general equilibriumhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37801
n this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the importance of two different channels through which academic talent is transmitted across generations (persistence of innate ability vs. the impact of parental education) for the optimal design of these policies and model different forms of labor as imperfect substitutes, thereby generating general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers. We show that subsidizing higher education has important redistributive benefits, by shrinking the college wage premium in general equilibrium. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.Dirk Krueger; Alexander Ludwigworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37801Mon, 27 Jul 2015 13:04:21 +0200Regulatory influence on market conditions in the banking union : the cases of macro-prudential instruments and the bail-in toolhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37799
This paper looks into the specific influence that the European banking union will have on (future) bank client relationships. It shows that the intended regulatory influence on market conditions in principle serves as a powerful governance tool to achieve financial stability objectives.
From this vantage, it analyzes macro-prudential instruments with a particular view to mortgage lending markets – the latter have been critical in the emergence of many modern financial crises. In gauging the impact of the new European supervisory framework, it finds that the ECB will lack influence on key macro-prudential tools to push through more rigid supervisory policies vis-à-vis forbearing national authorities.
Furthermore, this paper points out that the current design of the European bail-in tool supplies resolution authorities with undue discretion. This feature which also afflicts the SRM imperils the key policy objective to re-instill market discipline on banks’ debt financing operations. The latter is also called into question because the nested regulatory technique that aims at preventing bail-outs unintendedly opens additional maneuvering space for political decision makers.Tobias Trögerworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37799Mon, 27 Jul 2015 12:52:29 +0200Compensation schemes, liquidity provision, and asset prices: an experimental analysishttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37796
In an experimental setting in which investors can entrust their money to traders, we investigate how compensation schemes affect liquidity provision and asset prices. Investors face a trade-off between risk and return. At the benefit of a potentially higher return, they can entrust their money to a trader. However this investment is risky, as the trader might not be trustworthy. Alternatively, they can opt for a safe but low return. We study how subjects solve this trade-off when traders are either liable for losses or not, and when their bonuses are either capped or not. Limited liability introduces a conflict of interest because it makes traders value the asset more than investors. To limit losses, investors should thus restrict liquidity provision to force traders to trade at a lower price. By contrast, bonus caps make traders value the asset less than investors. This should encourage liquidity provision and decrease prices. In contrast to these predictions, we find that under limited liability investors contribute to asset price bubbles by increasing liquidity provision and that caps fail to tame bubbles. Overall, giving investors skin in the game fosters financial stability.Sascha Baghestanian; Paul J. Gortner; Baptiste Massenotworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37796Mon, 27 Jul 2015 12:41:10 +0200Non-mandatory say on pay votes and AGM participation: evidence from Germanyhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37789
Since August 2009, German legislation allows for voluntary Say on Pay Votes (SoPV) during Annual General Meetings (AGMs). We examine 1,169 AGMs of all German listed firms with more than 10,000 agenda items over the period 2010-2013 to identify (1) determinants and approval rates of voluntary SoPVs, (2) the effect of voluntary SoPVs on AGM participation, and (3) the effect of SoP on executive compensation. Our data reveals that in the first four years of the voluntary say on pay regime every second firm in our sample has opted for having a SoPV. The propensity for a SoPV increases with firm size, abnormal executive compensation and free float of shares. Indeed, smaller firms with concentrated ownership do not only have a lower propensity for a SoPV, but also show a higher propensity to opt for only limited disclosure of executive compensation. Approval rates of SoPVs are lower than the approval rate for the average AGM agenda item and this effect is stronger in (i) widely held firms as well as in (ii) firms with abnormal executive compensation. Additionally, SoPVs actually can increase AGM participation; however, this result is particularly evident for widely held firms. Finally, we find stronger pay for performance elements within total executive compensation, particularly when the effect of executive compensation is lagged over the years following the vote. Overall, our results are consistent with the view that firms use voluntary SoPV to gain legitimation for executive remuneration policies in firms with low ownership concentration. This is enforced, where (small) shareholders consider executive compensation a part of the agency problem of listed firms, and where (small) shareholders consider SoPVs as a possibility to actively influence corporate decisions, with these decisions leading to a higher degree of alignment between executive management boards and shareholders.Daniel Powell; Marc Steffen Rappworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37789Mon, 27 Jul 2015 12:27:27 +0200Informal sector and economic development: the credit supply channelhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37787
The standard view suggests that removing barriers to entry and improving judicial enforcement reduces informality and boosts investment and growth. However, a general equilibrium approach shows that this conclusion may hold to a lesser extent in countries with a constrained supply of funds because of, for example, a more concentrated banking sector or lower financial openness. When the formal sector grows larger in those countries, more entrepreneurs become creditworthy, but the higher pressure on the credit market limits further capital accumulation. We show empirical evidence consistent with these predictions.Baptiste Massenot; Stéphane Straubworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37787Mon, 27 Jul 2015 11:29:44 +0200A decentralization theorem of taxationhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37450
n the EU there are longstanding and ongoing pressures towards a tax that is levied on the EU level to substitute for national contributions. We discuss conditions under which such a transition can make sense, starting from what we call a "decentralization theorem of taxation" that is analogous to Oates (1972) famous result that in the absence of spill-over effects and economies of scale decentralized public good provision weakly dominates central provision. We then drop assumptions that turn out to be unnecessary for this results. While spill-over effects of taxation may call for central rules for taxation, as long as spill-over effects do not depend on the intra-regional distribution of the tax burden, decentralized taxation plus tax coordination is found superior to a union-wide tax.Vilen Lipatov; Alfons J. Weichenriederworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37450Tue, 19 May 2015 16:03:07 +0200Predictably irrational : gambling for resurrection in experimental asset markets?http://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37449
Do markets correct individual behavioral biases? In an experimental asset market, we compare the outcomes of a standard market economy to those of a an island economy that removed market interactions. We observe asset price bubbles in the market economy while prices are stable in the island economy. We also find that subjects took more risk following larger losses, resulting in larger prices and consistent with a gambling for resurrection motive. This motive can translate into bubbles in the market economy because higher prices increase average losses and thus reinforce the desire to resurrect. By contrast, the absence of such a strategic complementarity in island economies can explain the more stable outcome. These results suggest that markets do not correct behavioral biases, rather the contrary.Sascha Baghestanian; Baptiste Massenotworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37449Tue, 19 May 2015 15:58:11 +0200Measuring sovereign contagion in Europehttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37448
This paper analyzes sovereign risk shift-contagion, i.e. positive and significant changes in the propagation mechanisms, using bond yield spreads for the major eurozone countries. By emphasizing the use of two econometric approaches based on quantile regressions (standard quantile regression and Bayesian quantile regression with heteroskedasticity) we find that the propagation of shocks in euro's bond yield spreads shows almost no presence of shift-contagion. All the increases in correlation we have witnessed over the last years come from larger shocks propagated with higher intensity across Europe.Massimiliano Caporin; Loriana Pelizzon; Francesco Ravazzolo; Roberto Rigobonworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37448Tue, 19 May 2015 15:53:18 +0200Multiplex interbank networks and systemic importance : an application to European datahttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37447
Research on interbank networks and systemic importance is starting to recognise that the web of exposures linking banks balance sheets is more complex than the single-layer-of-exposure paradigm. We use data on exposures between large European banks broken down by both maturity and instrument type to characterise the main features of the multiplex structure of the network of large European banks. This multiplex network presents positive correlated multiplexity and a high similarity between layers, stemming both from standard similarity analyses as well as a core-periphery analyses of the different layers. We propose measures of systemic importance that fit the case in which banks are connected through an arbitrary number of layers (be it by instrument, maturity or a combination of both). Such measures allow for a decomposition of the global systemic importance index for any bank into the contributions of each of the sub-networks, providing a useful tool for banking regulators and supervisors. We use the dataset of exposures between large European banks to illustrate the proposed measures.Iñaki Aldasoro; Iván Alvesworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37447Tue, 19 May 2015 15:45:29 +0200On the impact of leveraged buyouts on bank systemic riskhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37446
Although banks are at the center of systemic risk, there are other institutions that contribute to it. With the publication of the leveraged lending guideline in March 2013, the U.S. regulators show that they are especially worried about the private equity firms with their high-risk deals. Given these risks and the interconnectedness of the banks through the LBO loan syndicates, I shed light on the impact of a bank’s LBO loan exposure on its systemic risk. By using 3,538 observations between 2000 and 2013 from 165 global banks, I show that banks with higher LBO exposure also have a higher level of systemic risk. Other loan purposes do not show this positive relationship. The main drivers influencing this relationship positively are the bank’s interconnectedness to other LBO financing banks and its size. Lending experience with a specific PE sponsor, experience with leading LBO syndicates or a bank’s credit rating, however, lead to a lower impact of the LBO loan exposure on systemic risk.Marcel Gruppworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37446Tue, 19 May 2015 15:35:29 +0200Taking the lead: when non-banks arrange syndicated loanshttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37445
In the mid-1990s, institutional investors entered the syndicated loan market and started to serve borrowers as lead arrangers. Why are non-banks able to compete for this role against banks? How do the composition of syndicates and loan pricing differ among lead arrangers? By using a dataset of 12,847 leveraged loans between 1997 and 2012, I aim to answer these questions. Non-banks benefit from looser regulatory requirements, have industry expertise which helps them in the screening and monitoring of borrowers and focus on firms that ask for loans only instead of additional cross-selling of other services. I can show that non-banks specialize on more opaque and less experienced borrowers, are more likely than banks to choose participants that help to reduce potentially higher information asymmetries and earn 105 basis points more than banks.Marcel Gruppworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37445Tue, 19 May 2015 15:33:16 +0200The influence of leveraged buyouts on target firms' competitorshttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37444
This paper analyzes the influence Leveraged Buyouts (LBOs) have on the operating performance of the LBO target companies’ direct competitors. A unique and hand-collected data set on LBOs in the United States in the period 1985-2009 allows us to analyze the effects different restructuring activities as part of the LBO have on the competitors’ revenues. These restructuring activities include changes to leverage, governance, or operating business, as well as M&A activities of the LBO target company. We find that although LBOs itself have a negative influence on competitors’ revenue growth, some restructuring mechanisms might actually benefit competing companies.Marcel Grupp; Christian Rauch; Marc P. Umber; Uwe Walzworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37444Tue, 19 May 2015 15:28:08 +0200The Effects of Contingent Convertible (CoCo) Bonds on Insurers' Capital Requirements Under Solvency IIhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37443
The Liikanen Group proposes contingent convertible (CoCo) bonds as a potential mechanism to enhance financial stability in the banking industry. Especially life insurance companies could serve as CoCo bond holders as they are already the largest purchasers of bank bonds in Europe. We develop a stylized model with a direct financial connection between banking and insurance and study the effects of various types of bonds such as non-convertible bonds, write-down bonds and CoCos on banks' and insurers' risk situations. In addition, we compare insurers' capital requirements under the proposed Solvency II standard model as well as under an internal model that ex-ante anticipates additional risks due to possible conversion of the CoCo bond into bank shares. In order to check the robustness of our findings, we consider different CoCo designs (write-down factor, trigger value, holding time of bank shares) and compare the resulting capital requirements with those for holding non-convertible bonds. We identify situations in which insurers benefit from buying CoCo bonds due to lower capital requirements and higher coupon rates. Furthermore, our results highlight how the Solvency II standard model can mislead insurers in their CoCo investment decision due to economically irrational incentives.Tobias Niedrig; Helmut Gründlworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37443Tue, 19 May 2015 15:16:55 +0200Optimal asset allocation for interconnected life insurers in the low interest rate environment under solvency regulation
http://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37442
I assess how Basel III, Solvency II and the low interest rate environment will affect the financial connection between the bank and insurance sector by changing the funding patterns of banks as well as the investment strategies of life insurance companies. Especially for life insurance companies, the current low interest rate environment poses a key risk since declining returns on investments jeopardize the guaranteed return on life insurance contracts, a core component of traditional life insurance contracts in several European countries. I consider a contingent claim framework with a direct financial connection between banks and life insurers via bank bonds. The results indicate that life insurers' demand for bank bonds increases over the mid-term but ultimately declines in the long-run. Since life insurers are the largest purchasers of bank bonds in Europe, banks could lose one of their main funding sources. In addition, I show that shareholder value driven life insurers' appetite for risk increases when the gap between asset return and liability growth diminishes. To check the robustness of the findings, I calibrate a prolonged low interest rate scenario. The results show that the insurer's risk appetite is even higher when interest rates remain persistently low. A sensitivity analysis regarding industry-specific regulatory safety levels reveals that contagion between bank and life insurer is driven by the insurers' demand for bank bonds which itself depends on the regulatory safety level of banks.Tobias Niedrigworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37442Tue, 19 May 2015 15:10:37 +0200Banking union and the governance of credit institutions : a legal perspective
http://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37441
The creation of the Banking Union is likely to come with substantial implications for the governance of Eurozone banks. The European Central Bank, in its capacity as supervisory authority for systemically important banks, as well as the Single Resolution Board, under the EU Regulations establishing the Single Supervisory Mechanism and the Single Resolution Mechanism, have been provided with a broad mandate and corresponding powers that allow for far-reaching interference with the relevant institutions’ organisational and business decisions. Starting with an overview of the relevant powers, the present paper explores how these could – and should – be exercised against the backdrop of the fundamental policy objectives of the Banking Union. The relevant aspects directly relate to a fundamental question associated with the reallocation of the supervisory landscape, namely: Will the centralisation of supervisory powers, over time, also lead to the streamlining of business models, corporate and group structures of banks across the Eurozone?Jens-Hinrich Binderworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37441Tue, 19 May 2015 15:03:33 +0200Sovereign credit risk, liquidity, and ECB intervention : deus Ex machina?
http://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37440
This paper examines the dynamic relationship between credit risk and liquidity in the sovereign bond market in the context of the European Central Bank (ECB) interventions. Using a comprehensive set of liquidity measures obtained from a detailed, quote-level dataset of the largest interdealer market for Italian government bonds, we show that changes in credit risk, as measured by the Italian sovereign credit default swap (CDS) spread, generally drive the liquidity of the market: a 10% change in the CDS spread leads a 11% change in the bid-ask spread. This relationship is stronger, and the transmission is faster, when the CDS spread is above the 500 basis point threshold, estimated endogenously, and can be ascribed to changes in margins and collateral, as well as clientele effects. Moreover, we show that the Long-Term Refinancing Operations (LTRO) intervention by the ECB weakened the sensitivity of the liquidity provision by the market makers to changes in the Italian government's credit risk. We also document the importance of market-wide and dealer-specific funding liquidity measures in determining the market liquidity for Italian government bonds.Loriana Pelizzon; Marti G. Subrahmanyam; Davide Tomio; Jun Unoworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37440Tue, 19 May 2015 14:55:21 +0200How do banks react to catastrophic events? Evidence from hurricane Katrinahttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37197
This paper explores how banks adjust their risk-based capital ratios and asset allocations following an exogenous shock to their asset quality caused by Hurricane Katrina in 2005. We find that independent banks based in the disaster areas increase their risk-based capital ratios after the hurricane, while those part of a bank holding company do not. The effect on independent banks mainly comes from the subgroup of high-capitalized banks. These banks increase their holdings in government securities and reduce loans to non-financial firms. Hence, banks that become more stable achieve this at the cost of reduced lending.Claudia Lambert; Felix Noth; Ulrich Schüwerworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37197Tue, 31 Mar 2015 16:13:08 +0200Revisiting the narrative approach of estimating tax multipliershttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37194
A number of recent studies regress a "narratively" identified measure of a macroeconomic shock directly on an outcome variable. In this note, we argue that this approach can be viewed as the reduced-form regression of an instrumental variable approach in which the narrative time series is used as an instrument for an endogenous series of interest. This motivates evaluating the validity of narrative measures through the lens of a randomized experiment. We apply our framework to four recently constructed narrative measures of tax shocks by Romer and Romer (2010), Cloyne (2013), and Mertens and Ravn (2012). All of them turn out to be weak instruments for observable measures of taxes. After correcting for weak instruments, we find that using any of the considered narrative tax measures as an instrument for cyclically adjusted tax revenues yields tax multiplier estimates that are indistinguishable from zero. We conclude that the literature currently understates the uncertainty associated with quantifying the tax multiplier.Shafik Hebous; Tom Zimmermannworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37194Tue, 31 Mar 2015 16:00:34 +0200Optimal carbon abatement in a stochastic equilibrium model with climate changehttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37193
This paper studies a dynamic stochastic general equilibrium model involving climate change. Our model allows for damages on economic growth resulting from global warming. In the calibration, we capture effects from climate change and feedback effects on the temperature dynamics. We solve for the optimal state-dependent abatement policy. In our simulations, the costs of this policy measured in terms of lost GDP growth are moderate. On the other hand, postponing abatement action could reduce the probability that the climate can be stabilized. For instance, waiting for 10 years reduces this probability from 60% to 30%. Waiting for another 10 years leads to a probability that is less than 10%. Finally, doing nothing opens the risk that temperatures might explode and economic growth decreases significantly.Christoph Hambel; Holger Kraft; Eduardo S. Schwartzworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37193Tue, 31 Mar 2015 15:47:08 +0200Too interconnected to fail : a survey of the interbank networks literaturehttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37186
The banking system is highly interconnected and these connections can be conveniently represented as an interbank network. This survey presents a systematic overview of the recent advances in the theoretical literature on interbank networks. We assess our current understanding of the structure of interbank networks, of how network characteristics affect contagion in the banking system and of how banks form connections when faced with the possibility of contagion and systemic risk. In particular, we highlight how the theoretical literature on interbank networks offers a coherent way of studying interconnections, contagion processes and systemic risk, while emphasizing at the same time the challenges that must be addressed before general results on the link between the structure of the interbank network and financial stability can be established. The survey concludes with a discussion of the policy relevance of interbank network models with a special focus on macroprudential policies and monetary policy.Anne-Caroline Hüserworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37186Tue, 31 Mar 2015 15:15:58 +0200Fiscal stimulus and labor market flexibilityhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37127
This paper investigates whether a fiscal stimulus implies a different impact for flexible and rigid labour markets. The analysis is done for 11 advanced OECD economies. Using quarterly data from 1999 to 2013, I estimate a panel threshold structural VAR model in which regime switches are determined by OECD’s employment protection legislation index. My empirical results indicate significant differences between rigid and flexible labour markets regarding the impact of the fiscal stimulus on output and unemployment. While the impulse response of real GDP to a government spending shock is positive and more effective in flexible labour markets, it has less impact in the rigid ones. Moreover, it is found that a fiscal stimulus leads to higher overall unemployment in highly regulated countries.Pinar Topalworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37127Tue, 10 Mar 2015 16:50:51 +0100Does exchange of information between tax authorities influence multinationals' use of tax havens?http://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37122
Since the mid-1990s, countries offering tax systems that facilitate international tax avoidance and evasion have been facing growing political pressure to comply with the internationally agreed standards of exchange of tax information. Using data of German investments in tax havens, we find evidence that the conclusion of a bilateral tax information exchange agreement (TIEA) is associated with fewer operations in tax havens and the number of German affiliates has on average decreased by 46% compared to a control group. This suggests that firms invest in tax havens not only for their low tax rates but also for the secrecy they offer.Julia Braun; Alfons J. Weichenriederworkingpaperhttp://publikationen.stub.uni-frankfurt.de/frontdoor/index/index/docId/37122Tue, 10 Mar 2015 16:45:00 +0100